34 JANUARY / FEBRUARY 2018 HUMAN RESOURCES Debra A. Mastrian Partner SmithAmundsen LLC dmastrian@salawus.com SmithAmundsen LLC is a Diamond Associate Member of the Indiana Bankers Association. Article author Employers looking for ways to protect their businesses often consider using restrictive covenants, including noncompete, non-solicitation and non-disclosure agreements. A restrictive covenant agreement may be signed before, at the start of, or after employment has commenced. In Indiana, unlike other states, the offer of or continued at-will employment is sufficient consideration to support the agreement. No additional consideration is necessary. With the exception of non-disclosure agreements, one size does not necessarily fit all employees. Employers should identify what interests they are trying to protect (e.g. trade secrets, customer relationships, etc.) and determine which type(s) of restrictive covenant is appropriate for each position. Noncompetes usually are used for executives, management and positions involving customer relationships; however, they may not be appropriate for lower-level positions. Noncompetes are not favored by Indiana courts and are narrowly construed, unless the noncompete is given in conjunction with the sale of business, in which case the noncompete is more broadly construed. An employer must have a legitimate business reason the employer is trying to protect. In other words, the employer must be able to show why it would be unfair to allow the employee to compete. Typically, the interest is in the employer’s trade secrets, confidential information, special training or goodwill generated between a customer and the employer’s business. The noncompete must be reasonable in length, geography and scope of activities. Usually, two years or less is a reasonable time restriction. The geographic scope must generally bear some relation to the employee’s duties. For example, a geographic restriction may consist of the employee’s sales area within which the employee worked, or a reasonable number of miles from the office where the employee worked and solicited business or managed client relationships for the employer. In terms of the scope of activities, the noncompete generally should not prevent the employee from working in any capacity for a competitor, but instead in the same or similar capacity. Note: To the extent any part of a restrictive covenant is overly broad, an Indiana court may apply the “blue pencil” doctrine to delete the words or phrases that are overly broad and unenforceable. Non-solicitation agreements are more favored and are routinely upheld by Indiana courts if reasonable in length and scope. They may be used, for example, to prohibit solicitation of customers for whom the employee previously performed services, or to prevent the former employee from soliciting or “raiding” the employer’s current employees. Some agreements prohibit not only the solicitation of business from former clients, but also the acceptance or receiving of competitive business from former clients. There is an argument that prohibiting the acceptance of business restricts the free choice of customers. However, in Field v. Alexander & Alexander of Indiana, Inc., 503 N.E.2d 627 (Ind.Ct.App. 1987), the court upheld a non-acceptance of business clause in an insurance salesman’s restrictive covenant agreement, finding that the customers were not prohibited from doing business with the company, only the employee. Note: The issue may have been decided differently, if the employee had been an owner of the business, or if a fiduciary-type relationship existed between the customer and the employee. Outside of Indiana, states are split on Restrictive Covenants In Indiana
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